Merrill Wealth Management plans to double its organic growth rate in the next several years, with Merrill Co-Head Eric Schimpf arguing the firm has the “power and scale to be outpacing the industry” during Bank of America’s Investor Day.
According to Bloomberg, today’s Investor Day in Boston is Bank of America’s first in nearly 15 years. Several weeks ago, the bank reported a 10% and 12% year-over-year increase in revenue and asset management fees, respectively, in its Q3 earnings (the figures include Merrill and BofA’s Private Bank division).
Nevertheless, according to Bloomberg, the wirehouse’s stock is trailing its peers. Some investor concerns stemmed from 2021, when BofA invested hundreds of billions in long-dated Treasury and mortgage bonds with low interest rates. The investments lagged behind those of rivals who waited to buy until interest rates climbed.
Nonetheless, Merrill Wealth is aiming for a 4% to 5% annual organic growth rate in the medium term (defined as three to five years), which would double its current annual rate and significantly surpass the wealth management’s average growth rate of recent years.
According to Schimpf, in the past several years, Merrill Wealth had “generally been operating in line with industry growth, and we think we can do better.”
To achieve this goal, the firm aims to expand its assets by attracting existing high-net-worth and ultra-high-net-worth clients from BofA into its wealth management services. According to Merrill Co-head Lindsay Hans, out of about 11.5 million BofA clients who could benefit from their services, only about 1.5 million are wealth management clients.
“They are in our house today, and it is our responsibility and commitment to them to move them through the rooms of the house,” she said, calling it an “enormous” opportunity.
According to the presentation, about 5.7 million HNW individuals are current BofA clients, while only 1 million are wealth clients. In the workplace benefits and business banking divisions, approximately 3.3 million and 1.8 million clients would likely benefit from wealth services, but only about 230,000 and 270,000 are currently wealth clients, respectively.
According to Schimpf, capturing just 1% of the $10 trillion opportunity available in tapping BofA clients could result in $100 billion in net new asset growth per year; alone, that would get Merrill Wealth halfway towards its medium-term growth targets.
According to Schimpf, in recent weeks, Merrill has also put AI tools on every advisor’s desktop that can review client statements, market performance, results and notes to create “comprehensive” client reviews, completing a task that previously took hours in minutes.
Additionally, the firm plans to flip the emphasis between brokerage assets and fee-based AUM. In the third quarter, 53% ($1.9 trillion) of Merrill assets were brokerage, while 47% ($1.7 trillion) were fee-based assets; in the next several years, Merrill is targeting 45% and 55% for brokerage and fee-based assets, respectively.
Schimpf also detailed alternatives’ role in expanding growth (having noted on the Q3 earnings call that the firm was seeing interest in sports franchises as an alts option). Schimpf said the firm saw a 12% year-over-year increase in advisor adoption of using alts, with over $90 billion in client assets.
However, Schimpf expects the future percentage to be closer to 10%, and expects the firm will need to entice more advisors to offer alts to HNW and UHNW clients to meet that target.
“Once they use it, we think they will continue to use it,” Schimpf said.